Although I endeavor to treat high dudgeon as an art form, it is difficult to find words adequate to convey the level of ridicule and opprobrium that Adam Davidson’s latest New York Times piece, “What Does Wall Street Do for You?” deserves. I had the vast misfortune to come across it late last week, and have gotten an unusually large volume of incredulous reader e-mails about it. Ms. G’s e-mail headline “NYT – Not a Parody” was typical:

This one is so bad, even for NYT, I’m wondering if the paper wasn’t secretly sold to Murdoch, Bloomberg & the Fed Reserve sometime in the past few days.

The problem with the piece isn’t that it’s propaganda. The majority of what you read in the mainstream media these days is propaganda. It’s that it’s shameless, blundering, obviously false propaganda. Eddie Bernays must be spinning in his grave.

Things have now gotten so bad that we now need official propaganda ratings, maybe on a crowd sourced or an Intrade model. I never thought the day would come when I would hold up Andrew Ross Sorkin or Baghdad Bob Ezra Klein as models, but what they write has a tangential connection to reality and sounds plausible if you are not terribly well informed. By contrast, Davidson is all bumptious presumption, evidently hoping that if he sallies forth with enough vigor and enthusiasm, he will overcome any resistance.

You really need to read this train-wreck of a piece to understand how vomititiously bad it is. It argues we’d be living in mud huts were it not for Wall Street, which he defines as “The country’s largest investment banks, commercial banks and a few big insurance companies.” In other words, we don’t appreciate all the good the too big too fail firms are doing for all of us. Yet there is not a shred of evidence, not an iota of proof offered for any of Davidson’s assertions. And the overall thrust of his argument and many of its particulars are embarrassingly wrong (well, I am probably being charitable in assuming Davidson is capable of being embarrassed).

Davidson asserts that the big financial firms:

play the crucial role of intermediation — matching borrowers with lenders. Most of the time, the industry does this extremely well (though in the case of matching homeowners’ debt to the global financial system, too enthusiastically).

Lordie, lending money goes back to the Bronze Age. We don’t need massive financial firms to do that. And they don’t do it particularly well. FICO based credit lending has proven to be a poor proxy for creditworthiness. The banks blew themselves up, not out of “overenthusiasm,” but as we described in ECONNED, adoption of fatally flawed ways of measuring risk and management structures which make the senior managers both hostage to and in cahoots with “producers” led to widespread looting. This isn’t a benign and efficient financial system; it’s a rampant predator. And it does not do a particularly good job of allocating capital. Aside from the fact that the expansion of the financial sector is correlated with slower growth and more frequent financial crises, investors have also become more short term oriented. As Andrew Haldane of the Bank of England described, required investment returns show a marked short term bias, which leads to underfunding of projects with back-end weighted payoffs, such as infrastructure and new technologies.

And Davidson not only misleads, he says things that are completely false:

Most know that Ben Bernanke, Henry Paulson and Tim Geithner (like central bankers and treasury officials everywhere) were following the hallowed advice that Walter Bagehot, onetime editor of The Economist, set down in 1873: during a crisis, a country must do everything possible to preserve its banks.

This is what Bagehot actually said:

The cardinal maxim is, that any aid to a present bad Bank is the surest mode of preventing the establishment of a future good Bank.

As much as I’d enjoy thrashing the piece further, Amar Bhide, who is uniquely to do so, has graciously offered to help. Bhide is the author of a landmark book on entrepreneurship, The Origin and Evolution of New Businesses, and his most recent book is
A Call for Judgment: Sensible Finance for a Dynamic Economy. We were both members of the financial institutions group at McKinsey. Bhide became a proprietary trader before joining Harvard in its finance faculty, then switched to focusing on entreprenuership. He now teaches at Fletcher.

From Bhide:

The author invites readers to imagine what life would be like without Wall Street. How awful: the poor would remain poor, there would be no middle class etc etc.

The reality is that all the good things that a financial system is supposed to do were in place more than half a century ago. There would certainly have been no mass market for automobiles and radios and vacuum cleaners without consumer finance. But that was invented in the 1920s.

The issue is of balance. We need a financial system that extends credit to those are likely to repay, not to reckless borrowers. A good diet must have protein but an all protein diet is dangerous.

What we have had in the last 30-40 years is excess piled upon excess.

I can very easily imagine life with finance as it used to be say in the 1960s, without a credit producing machine that enables reckless borrowing, without instruments that are supposed to reduce risks that have in fact gutted the real economy, and too big to fail banks like JP Morgan with more than 75 trillion dollars of derivatives on their books.

The piece reminds me of Blankfein claim in a London Times interview that Goldman “does God’s work” which he later said was a joke; but it did not amuse in at a time when unemployment was crossing 10 percent. In the same interview, Blankfein asserted that Goldman Sachs served a ”social purpose” by “help[ing] companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.”

Blankfein’s claim, which was presumably not intentionally jocular, is hard to take seriously as an explanation for the tripling of the Goldman’s revenues from $13 billion in 1999 to $46 billion in 2007, and of employee compensation from $6 billion to over $20 billion. Equity underwriting – issuing stock for real companies – accounted for about 3 percent of Goldman’s 2007 revenues, and debt underwriting (which includes mortgage and other asset backed securities, not just corporate debt) accounted for another 4 percent on revenues.

Meanwhile, trading and principal investments amounted to 68 percent of revenues, and asset management and securities services (which also have little to do with raising money for real companies) 16 percent.

It is also difficult to imagine that trading and principal investment revenues were more than five times as great in 2007 as they had been in 1999 because Goldman’s traders had become five times better. Rather, Goldman multiplied its trading profits by multiplying its risk taking and leverage, borrowing vast sums from banks and shadow banks.

Davidson’s last two pieces for the Sunday New York Times magazine exemplifies the “do whatever you can get away with” attitude that now seems pervasive in big finance. But it is an open question why the Grey Lady is giving this sort of work such prominent placement.

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53 comments

The so-called public editor for the Times has been getting a rash of richly deserved shit for earnestly asking readers if they actually expected the Times to figure out whether sources were telling the truth.

Perhaps we should persuade him to ponder whether the paper ought to be expected to tell us when its own reporters are full of it.

At a minimum, Times should attach conflict-of-interest tags to the names of its writers in the print and online editions, e.g., Al Baker, “son of NYPD lieutenant.” Just helps to “consider the source” when you read the articles. It was fascinating to watch the NYT replace Selter with Baker in mid-coverage on the Saturday of the OWS march across the Brooklyn Bridge and suddenly, the only sources for “facts” were “official,” not-so-subtly bolstering the official version of the events.

Its clear the 1% are making a concerted effort to look better than they are. Their PR minions are out in full force. This NYT piece isn’t an isolated event. It comes little over a week after the Economist splattered its front page with Their “Save te City” editorial. I don’t think it’s a coincidence that te premier print media in both the US and UK are printing defensive articles about their country’s financial sectors in such close
Proximity to each other. Maybe the 1% actually fear the guillotines.

That’s coming for the same asshole who, after taking a 2 months paternity leave and got back to his same job (you know a lot of cats that can do that in this country?) wrote that the US is economically stronger because ditching and stiffing workers is much easier than in retrograde Europe.

And don’t get me started about his musings about manufacturing in America. The only thing he could muster when asked on Planet Money what about the workers, he just started to babble the usual boilerplate platitudes like “I’m sure they’ll be OK.”

I wonder what the % is of voting age people in the US who remember life before the changes that handed control to the markets he adores so? I think they rely on people not knowing it could be different.

Ah yeah I remember, when unions were running unchecked and the taxes on bonuses were at 75%, yeah I remember. Thank GOD for Reagan and Thatcher, too bad idiots had to dogmatically pursue their policies when it wasn’t needed anymore and the banks did blow everyone up because the seeds of the next fuck up (the left goop that is being peddled on this site) is on display.

Your logic escapes me. If Ronnie’s and Maggie’s policies where so good why would slavishly following them result in the Great Collapse? You are implying that their policies where flawed and the natural outcome of them is the current kleptocracy of Wall St. If that is the case then it wasn’t God you should be thanking, but Satan.

The great collapse did not come from slavishly following Reagen and Thatcher’s policies but from raw lawlessness and a corporate/government cabal of corruption. That corruption and lawlessness is not a right/left thing or a conservative/liberal thing it is a right/wrong thing.

Putting up straw-man arguments to beat your “opposition” only plays into the hand of the the true powers that are the presernt cause of the problem, and makes it more difficult to ever fix it.

The Thatcher/Reagan principle that deregulation was great led to the conditions that allowed the lawless and greedy to wreck the global economy. They established the political paradigm that permitted the removal of safeguards aimed at preventing the creation of SDI entities. That paradigm has not yet been overthrown. In fact it now appears to be stronger than ever.

Ah yeah I remember, when unions were running unchecked and the taxes on bonuses were at 75%, yeah I remember.”

Funny, I don’t. I remember Carter inheriting the Ford fiasco of the “WIN” program because of the inflation two terms of Nixon had left us with, not to mention Tricky taking us off the gold standard and also giving us the first oil/gasoline shortage….and the now-crushingly costly “War on Drugs.”

Got a *shred* of evidense to back up your claim of “unions running unchecked”? Or “taxes on bonuses…at 75%”?

I’m sure you mean bankers bonuses, bub, because there were no union members (or non-union workers for that matter, unless it was an ESOP company) getting any bonuses, much less getting taxed on them….no matter how much profit we made for the corporations.

Now run along Mr. Davidson…er…”Floppy disk”….your non-sourced, inaccurate claims are called out as BS by farang.

Oh yeah, and while you are running…try to find Pan Am, Eastern and TWA airlines that disappeared under the brain-addled B-actor’s deregulation of the airlines…I know we all now throughly enjoy paying for the surly service and the luggege we used to have checked in for free (two big suitcases.)

I see you are another commentator that is confused about the political spectrum. It’s Fascists on the right (and that includes all capitalists, Liberal,Libertarian,and conservatives alike) and Communists (and Socialists & Anarchists) on the left.

And yet another hormonal entry by our lady of NC. What a bunch of crap your criticism is. It is obvious that banks are an integral part of the capitalist system, it is also obvious that the main reason a billion people got out of human misery and squalor in the past 30 years is through capitalism and fiat money. The piece does a bang up job of repeating the obvious: that the banks are the source of all money. Who should manage the creation of money? The central politburo of NC? In the original article the one standing silly statement is the part about matching savers and investors (MMT sets the record straight) but the past 30 years of expansion is due to monetary expansion.

If Yves were inclined to respond in kind to this misogynistic invective, she might note that when your disk is small and floppy it moves you to overcompensate with bullying. But Yves has ignored you instead, which is what you probably deserve.

Wow! A “hormonal entry”??? I normally avoid commenting on obvious trolling, but I can’t help but smile at this one. Not only is it complete non-sequitur relative to Yves’ comment, it is also completely off-base relative to the theme of the original post.

The smile is due to the name the poster uses; a possible Freudian slip??? ;-)

If you really believe what you said you are delusionsal. Don’t try patronising me with I’m just a stupid liberal. I am a conservative (true not the fake corrupt ones presently “all the rage”), retired military officer, and practicing engineer.

No thinking person is complainging about capitalism or fiat money per se, nor that it is the primary cause of the problem. The primary cause of the problem is corruption and lawlessness (MF Golbal anyone?) on the part of most all the players in the financial market that are co-dependent on the politicians making laws, enforcing laws and regulating them.

What we have is an existance proof that if you blow 10’s $T over a 30-year period, that the standard of living will rise a littlr for some and alot for others (and not at all for yet others). We are now proving what happens when the bills come due (the corrupt crony capitalists try to cost-shift the payment away from themselves onto the rest of the population). How fortunate that the due bill is coming at the time of the Babyboomers beginning to retire, when they will be attempting to liquidate “savings” to pay for thier retirement. Tell me Mr. limp expert what is the financial macro meaning of large-scale multi-year saving/asset liquidation imply? I’ll tell you. It means deleveraging. Giving the fraudulent levels of existing leverage in the banking and financial sector of Wall-Sreet, that means BANKRUPTCY.

Oh,hormonal.
Undeniable Scientific Fact-only women have hormones.
Thank Dog us blokes don’t,that’s why our decisions are all rational and sensible.Well they must be,they’re ours.
How do you do a vomit in text…<~%%?

Of course you are absolutely right about this guy, although I doubt many of your readers remember Lord Haw Haw. Yet, how many of the economic and social disasters from which we now suffer are a consequence of otherwise intelligent and morally grounded people believing they could shuffle off to Wall Street (or big business or big law or big consulting) and do well personally while doing if not good at least no significant harm? The sad truth is that anyone with a shred of intellectual honesty who actually labored in this shake pit at any time since (at least) 1970 could do so only by deliberately kidding himself (or herself) about this. Seriously, now what exactly does McKinsey or Goldman have to offer and would the country and the world be a better or worse place if either or both simply disappeared or never existed in the first place?

My most aggressive and very intelligent best friend went from Chicago Harris Bank to NYC to strike it rich in the mid ’70s, and quit after a stint with the now defunct Chemical Bank; his reason: the higher up he got, the more criminal behavior he encountered and was expected to perform. Chemical Bank turned out to be Mafia, I believe, into money laundering: same as we have now. What bank payed 450m for drug cartel money laundering? And they are still in business? No rule of law in the USA. Last call at the casino?

A word of advice to whoever is running the ranks of the One Percent Whisperers(credit Lynn Parramore/AlterNet): deploy your resources at the appropriate level. Adam Davidson has local pennysaver talent, not NYT.

Listen to Davidson’s 2009 insulting interview of Elizabeth Warren on NPR. He tells her that she needs to put away her “pet” issues on the welfare of the American middle class until the banks are healthy again.

His grasp of finance and economics is almost non-existent and he has an adolescent need to try to show everyone how smart and cute he is. It’s that certain je ne sais quoi that we can often expect from NPR and NYT personalities.

The Gray Lady. The paper whose owner was in William Kristol’s play group. Read Tom Wicker’s autobiography. Newspaper owners give clear signals to their reporters and editors about the kind of analysis the owners expect.If you have no talent, the best way to get ahead is to write for the owner and his top editors. Works in almost any organization.

When I came across this article I had the same reaction as Ms. G– even said something similar to my husband. Still, I would hope most sane people could see through it. More troubling to me was the somewhat creepy Nicolas “white man’s burden” Kristof’s column on Europe. While purporting to take a clear eyed view of Europe’s successes, he makes jabs at their “inflexible” labor policies and welfare state. He does not mention that the nations with the most “inflexible” (read– strong workers’ rights) policies and most robust welfare states are the very nations that are faring the best. No, Nic it is not all about educational opportunites– the most unionized nations are the ones with the most social mobility.
Anyway, I find him dangerous because many liberals seem to drink his kool aid.

“One of the most striking facts of life in countries without a modern financial system is the near total absence of upward mobility.”

I mean, where has this moron been for the past forty years? What upward mobility in USA? I will suppose this qualifies for him saying that USA is “without a modern financial system?” Or does he confuse the current “system” with the British one Bagehot was writing about?

This idiot isn’t qualified to write for the VFW newsletter, how the heck does he work for the NYT?

Yves you have become a better writer since I’ve been reading the blog.

“Vomititiously bad” is beautiful. I would have said “vomitously bad” but “vomititiously” is actually better. The syllables roll with more undulation and spit, like the stomach contractions and pooling of saliva that precede the event in question. “Bumptious presumption” was quite good to. and the movement inherent in “sallying forth with vigor and enthusiasm” appropriately calls to mind all sorts of animated cartoon image metphors.

Don’t pass the mike so soon. Mr. Bhide has the creds to impress the impressionable and but his writing is a sleeping pill.

In light of Davidson’s spot on the payroll and Carlos Slim’s increasing investments in the preservation of the views of the 1% at the Times, I was astonished to see todays editorial about financial crimes. Obviously the politburo at the Times is at their dachas today remembering when the US had civil rights, but what a slip up this is!

I think Adam Davidson is shooting to become the David Brooks of the financial world. Although with Adam’s latest endeavor, that question might be unfair to David Brooks.

When I read Davidson’s piece in the Times, I thought it was noticibly worse than his usual content-free crap, but I did wonder if my opinion was colored by my increasingly low expectations for anything he writes.

So, I’m relieved to see that others also regarded his latest effort as awe-inspiring garbage.

When a courtier (like davidson) at Versaille on the Hudson, or Topkapi on the Potomac wants to write yet another, ahem, “fluff” piece about one thier favorite patrons, they dont research anything,they just go have drinkies and lunch with one of the grand Viziers and regurgitate everything they are told. That should be no suprise, it should be slightly disturbing that whichever wal st hedge fund manager-dickbag he spoke to before writing it, is that ignorant and dishonest. People who read this blog know how stupid and dishonest our rulers are, but people who read the NY times ( for information not laughs) should really stop and think about some of this crap. I guess thats the real rub – they arent talking to anyone but themselves anymmore and no longer care if rest of us disagree.